Taxation plays a pivotal role in economic growth of the country and the Indian industry expects announcement of various measures such as allocating of larger funds for infrastructure development, focus on social sector schemes, relief on taxation, etc.
From the advent of GST, the Government has time and again tried to iron out the complexities, compliance hiccups and anomalies with respect to various issues, however, there are still plethora of issues on which industry seeks government intervention.
One of the most important features of GST is to boost the competitiveness of businesses by ensuring the free flow of input tax credits (ITC) across the value chain. Restaurants presently operating at 5% without ITC have encountered reduction in operating margins since they are unable to recover the entire ITC cost from the customers which makes them less competitive. The National Restaurant Association of India (NRAI) has also requested the Government to restore ITC to the restaurants while increasing the rate of GST applicable on supply of restaurant services from 5% to 12%.Similarly, the pharma industry awaits relief with respect to ITC reversal on destruction of expired goods and free samples provided to doctors. Under GST, ITC is required to be reversed upon destruction, loss, disposal by way of gift or free samples or writing off goods. It is a general practice that Pharma companies provide samples to doctors and also required to dispose of the expired medicines as per regulatory requirement as the same are not fit for human consumption. Reversal of ITC on destruction of goods and distribution of samples increases the operating cost of the Pharma companies and thus, it is expected that government should exempt Pharma industry reversal of ITC on samples and expired goods. It is important that the government should bring the GST provisions in line with the prevailing trade practices and regulations imposed under other statutes. Currently, the income from medical tourism, are also treated as exempt services, despite the hospitals recovering its charges in foreign exchange. However, such revenue should be treated as a zero- rated revenue (i.e. export of services), so that the hospitals can claim ITC on various expenses incurred and claim refund of such ITC.In India the Government has shown clear focus in pushing use of Electric Vehicles (EV) and has accordingly kept the GST rate on EV at 5%. However, EV manufacturers are paying GST@18% on purchase of lithium batteries and spare parts which consequently increases the cost of manufacturing the EVs and thus, making it less affordable. With higher cost, the demand of EVs is less as compared to what was expected and thus, EV industry is expecting the government to rationalise the GST rates on lithium batteries and spare parts from 18% to 5% to meet government’s objective.
The inclusion of diesel under the GST ambit is a significant move that is expected from the Government in this budget. With India aiming to reduce its logistics costs and become more competitive in the international market, inclusion of diesel within the GST framework will benefit the logistics players to control costs by cutting on the tax outflow.
From the customs front also, the industry expects some amendments by the Union Budget. Vide the Finance Act, 2023, an amendment was made in the Manufacture and Other Operations in Warehouse Regulations (MOOWR) scheme in terms of which IGST and Compensation Cess was required to be paid upfront at the time of import of goods. This IGST and Compensation Cess are creditable and can be used for payment of output tax liability at the time of supply of finished goods. The industry and made various representations to the Government requesting to re-look at this amendment. The proposed change (this amendment has not yet been notified) will lead to blockage of the working capital till the finished goods are sold, which consequently will also make the scheme unattractive as only partial duty has been deferred. It is important to be noted that Duty deferment on import of capital goods and inputs was one of the major advantages provided under the MOOWR scheme. Thus, it is expected that the same should be kept in abeyance to keep the scheme attractive.
The government in the past has introduced amnesty scheme for service tax and central excise matters however, no such measures have been taken for customs pending litigations till date. It is expected that steps are taken to introduce amnesty scheme under customs laws to close the long-drawn litigations that is pending before the courts. This will not only help to cut down the burden of the judicial forums but will also help the taxpayer to get rid of the past disputes and move ahead litigation free.
Since this will be an interim budget, there is not much expectation for major announcements before the elections. However, we may see a clear indication towards intent on resuming the path of pragmatic fiscal management with a continued focus on infra spending and spending on social infrastructure.
Smita Singh is Partner – Indirect Tax, Customs & Trade and Khusbhoo Jain is Principal Associate at S&A Law Offices.
